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Quizzes > Business & Management

Accounting Analysis II Quiz

Free Practice Quiz & Exam Preparation

Difficulty: Moderate
Questions: 15
Study OutcomesAdditional Reading
3D voxel art representing the Accounting Analysis II course

Get ready to challenge your understanding with our engaging Accounting Analysis II practice quiz, designed specifically for graduate students exploring liabilities and shareholders' equity. This quiz covers key topics such as contingencies, subsequent events, bonds, leases, deferred taxes, pensions, equity transactions, and earnings per share, providing a comprehensive review to boost your exam readiness and deepen your analytical skills.

Which of the following best describes a bond?
A variable-rate financing tool.
A certified debt instrument with fixed interest and maturity.
A short-term financial obligation.
An equity interest in a firm.
A bond is a debt security that involves fixed interest payments and a specified maturity date. The other options mischaracterize bonds by describing equity, short-term obligations, or variable-rate instruments.
Which of the following is true about an operating lease?
It is used solely for the acquisition of real estate.
It is capitalized as an asset and liability on the balance sheet.
It transfers substantially all risks and rewards of ownership.
It typically does not result in the transfer of ownership and is expensed on the income statement.
Operating leases allow the use of an asset without transferring ownership, leading to rental expense recognition instead of capitalization. The other options describe characteristics inconsistent with operating leases.
Which of the following best explains the source of deferred tax liabilities?
Differences between accounting income and taxable income due to timing differences.
Valuation differences in market prices.
Inventory errors and misstatements.
Permanent differences between book and tax expenses.
Deferred tax liabilities arise when there are temporary differences in the timing of recognition between accounting income and taxable income. The other options do not correctly identify the typical source of these liabilities.
Which of the following best describes a defined benefit pension plan?
It involves fixed contributions to an individual retirement account.
It guarantees a specific rate of return on investments.
It does not require actuarial assumptions for measurement.
It provides a predetermined retirement benefit based on factors such as salary and service.
Defined benefit pension plans promise predetermined retirement benefits that are calculated using factors like salary and years of service, and they rely on actuarial assumptions for measurement. The alternate options better describe defined contribution plans or provide inaccurate details.
Which of the following is true regarding the calculation of basic earnings per share (EPS)?
EPS is computed by dividing total equity by the number of outstanding shares.
EPS is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding.
EPS is determined by dividing gross profit by total assets.
EPS uses net income adjusted for dividends on preferred stock without any common share dilution.
Basic EPS is a measure of profitability calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding. The other options either misstate the formula or confuse EPS with other financial ratios.
Which of the following best describes a contingent liability?
An obligation recorded on the balance sheet regardless of uncertainty.
A potential obligation whose occurrence or amount is uncertain, depending on future events.
A liability that is never disclosed in financial statements.
A guaranteed financial commitment with fixed amounts.
Contingent liabilities are potential obligations whose existence or amount depends on future events and require disclosure and, in some cases, accrual. The other options do not accurately capture the uncertainty inherent in contingent liabilities.
Under the effective interest method for bond accounting, the interest expense is calculated by:
Dividing the total bond premium by the number of periods.
Multiplying the bond's carrying amount by the market interest rate.
Using a predetermined, constant interest rate unrelated to market conditions.
Taking the fixed cash interest payment each period.
The effective interest method calculates interest expense based on the carrying amount of the bond multiplied by the market interest rate, reflecting the true cost over time. The other options overlook the dynamic nature of the bond's carrying value.
Which of the following scenarios is an example of a non-adjusting subsequent event?
Events occurring after the reporting date that indicate a new event, such as a natural disaster.
Events after the reporting date that reveal conditions existing at the balance sheet date.
Events that adjust the amount of receivables recorded before the reporting date.
Events that reverse errors identified in prior periods.
Non-adjusting subsequent events pertain to events occurring after the reporting date that introduce new conditions, such as a natural disaster, which do not affect conditions that existed at the balance sheet date. The other options either indicate adjusting events or other accounting revisions.
In the context of lease accounting, a lease should be classified as a finance lease when:
The lessee obtains substantially all the economic benefits and assumes the majority of risks and rewards of ownership.
The lease does not offer an option to purchase the asset at a bargain price.
The lease term is significantly shorter than the asset's useful life.
The asset is leased for short-term operational use only.
A finance lease is characterized by the transfer of substantially all the economic benefits and risks of ownership to the lessee. The other options describe features more typical of operating leases.
Deferred tax assets are recognized when:
It is probable that sufficient taxable income will be available to utilize the deductible temporary differences.
Temporary differences exist, regardless of future taxable income expectations.
The book value of assets always exceeds their tax basis.
Economic forecasts predict an increase in overall tax rates.
Deferred tax assets are recognized when there is a reasonable certainty that future taxable income will be available against which the temporary differences can be utilized. The incorrect options do not meet the recognition criteria required by accounting standards.
In accounting for defined benefit pension plans, the projected benefit obligation (PBO) is best described as:
The present value of all future pension benefits earned to date, including expected salary increases.
The total of current period contributions made by the employer.
The cumulative pension expense recognized in all prior periods.
The market value of the pension fund's assets.
The PBO represents the present value of future benefits that employees have earned, incorporating assumptions about future salary increases. The other choices do not reflect the method used to estimate a defined benefit pension obligation.
When a company issues a stock dividend, the typical accounting treatment involves:
Increasing cash and equity simultaneously.
Recording a gain from the issuance of additional shares.
Reducing liabilities on the balance sheet.
Reclassifying part of retained earnings to contributed capital.
Stock dividends require a reclassification entry that transfers a portion of retained earnings to contributed capital, leaving total equity unchanged. The other options incorrectly suggest changes to cash, gains, or liabilities.
Diluted earnings per share (EPS) differs from basic EPS in that diluted EPS:
Divides net income by total liabilities instead of shares.
Excludes the effects of convertible preferred stock entirely.
Is calculated solely based on current common shares outstanding.
Incorporates the potential impact of dilutive securities such as convertible bonds and options.
Diluted EPS takes into account the potential additional shares that could be issued from dilutive instruments, providing a more conservative measure of earnings per share. The other alternatives fail to capture this potential dilution.
Which of the following methods is used to account for significant actuarial gains or losses in defined benefit pension plans?
Deferring and netting with current period expenses.
Immediate recognition in the income statement.
Capitalizing as an intangible asset.
The corridor approach.
The corridor approach defers recognition of actuarial gains and losses until they exceed a predetermined threshold, helping to smooth out fluctuations in pension expense. The other options do not conform to accepted practices in pension accounting.
When accounting for contingencies, an estimated loss should be accrued if:
Contingent liabilities are always accrued regardless of probability.
It is probable that a liability has been incurred and the amount can be reasonably estimated.
The contingency is related to foreign exchange fluctuations.
It is merely possible that a liability has been incurred.
An estimated loss is accrued when it is both probable that a liability exists and the amount can be reasonably estimated, in accordance with accounting standards. The other options do not meet the necessary criteria for accrual.
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Study Outcomes

  1. Analyze the effects of contingencies and subsequent events on financial statements.
  2. Evaluate the accounting treatment of bonds and leases.
  3. Apply principles of deferred tax and pension reporting to financial data.
  4. Interpret equity transactions and their impact on shareholders' equity.
  5. Calculate and assess earnings per share performance.

Accounting Analysis II Additional Reading

Here are some top-notch academic resources to enhance your understanding of accounting analysis:

  1. Accounting Analysis II: Measurement and Disclosure of Liabilities This Coursera course, offered by the University of Illinois Urbana-Champaign, delves into current liabilities, contingencies, long-term debt, leases, and pension accounting. It's a comprehensive guide to liability measurement and disclosure.
  2. Accounting Analysis II: Accounting for Liabilities and Equity Another gem from the University of Illinois Urbana-Champaign on Coursera, this course focuses on deferred taxes, shareholders' equity transactions, and earnings per share, providing a deep dive into equity accounting.
  3. Accounting Analysis II: Measurement and Disclosure of Liabilities This resource offers an overview of liability accounting, covering topics like current liabilities, long-term debt, leases, and pensions, aligning well with your course content.
  4. Free Course: Accounting Analysis II: Measurement and Disclosure of Liabilities Class Central provides access to this free course from the University of Illinois at Urbana-Champaign, covering essential topics such as current liabilities, long-term debt, leases, and pension accounting.
  5. Accounting Analysis II: Measuring and Disclosing Liabilities This course from Illinois Tech focuses on advanced accounting concepts for measuring and disclosing various types of liabilities, including current liabilities, long-term debt, leases, and pensions.
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